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The Response of Firms to Eligibility Thresholds : Evidence from the Japanese Value-Added Tax

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  • Kazuki Onji

    (Australia–Japan Research Centre, Australian National University)

Abstract

It is common to defi ne benefi t eligibility for small business policies by restrictions on the fi rm size. This paper investigates the incentives for a large fi rm to masquerade as many small fi rms by separately incorporating business segments, focusing on the case of the Japanese value-added tax. The paper fi nds that the masquerading was pervasive and took place quickly after the introduction of tax incentives. Tax avoidance caused 3.4 per cent of the overall revenue drain in 1990, thus reducing horizontal equity, but the effi ciency consequence would not have been severe. This study suggests that the masquerading by fi rms may be commonplace in other settings.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 21965.

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Date of creation: Jan 2008
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Handle: RePEc:eab:financ:21965

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Keywords: Tax avoidance; Business group; Value-added tax; Firm size distribution;

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Citations

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Cited by:
  1. Chang-Tai Hsieh & Benjamin A. Olken, 2014. "The Missing "Missing Middle"," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 89-108, Summer.
  2. Onji, Kazuki, 2009. "The response of firms to eligibility thresholds: Evidence from the Japanese value-added tax," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 766-775, June.
  3. Jonathan Goyette, 2012. "Optimal tax threshold: the consequences on efficiency of official vs. effective enforcement," Cahiers de recherche, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke 12-07, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  4. Paul E. Carrillo & M. Shahe Emran & Anita Rivadeneira, 2011. "Do Cheaters Bunch Together? Profit Taxes, Withholding Rates and Tax Evasion," Working Papers, The George Washington University, Institute for International Economic Policy 2011-03, The George Washington University, Institute for International Economic Policy.

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